Debit Cards Teach Teens Money Management

How to use this tool tied to real money to educate

Can a teen really learn how to manage their finances with a piece of plastic? Yes, if that piece of plastic is a pre-paid card or a debit card linked to a checking account.

“I love debit cards for teens,” says June Walbert, a certified financial planner with USAA in San Antonio, which offers this product to its members. “It’s a great tool that allows parents and their kids to track spending online. Parents can offer advice and counsel along the way as kids learn how to manage their own money.”

Teen debit cards, as well as pre-paid cards, are being offered by more banks as well as online services. These types of cards give teens their first taste of electronic commerce, in an environment where parents still have supervisory control.

In the case of a debit card linked to a checking account, the bank can provide checks as well as the debit card. Deposits can be made by electronic transfer from a parent’s checking account or credit card, as well as by old-fashioned deposit ticket. Pre-paid cards can be loaded in much the same manner; kids who get a regular paycheck can also set up direct deposit.

Among the banks offering accounts targeted to teens are JPMorgan Chase (JPM). Its checking account for teens with an attached debit card is called High School Checking. Parents must co-sign. Bank of America (BAC) markets the CampusEdge. Wells Fargo (WFC) has a program, as do many credit unions.

Convenience, safety and education are all factors in why parents might want to consider using these cards as a way to introduce their kids to paying with plastic.

Patrice Peyret, CEO of Plastyc, a company which offers pre-paid cards to parents and their teens via companies such as Upside Visa (upsidevisa.com), says that the card is safer than cash, and allows parents better supervision over how their kids are spending their money.

“If you give a kid cash, they could lose it,” says Peyret. “If they lose the card, you can cancel it, and get a replacement. It’s actually safer than cash.”

And, the fact that you can monitor their expenditures online means you can discuss purchases, and whether they made wise decisions. And, for those times when only cold, hard cash will do, the card can be used at ATMs to make withdrawals.

Peyret says he hopes the cards can be used as an educational tool. “Teens go from cash they receive from their parents, to credit cards, with no intermediary in between,” he says. “This is a stepping stone between cash and credit cards. The difference: it can’t bring you into debt.”

Walbert agrees. “Are you going to entrust kids to cook prime rib when they can’t scramble eggs?” she says. “Probably not. The same thing applies to their finances. You need to teach them how to scramble eggs before they can make an omelette. Then they can graduate to prime rib.”

Those steps should start early in life, says Walbert, with kids learning to save a portion of their allowance, and making purchase decisions with small amounts of money. Paying with cash makes it more real for kids, who see their parents often paying for purchases with plastic.

“Think about it from a kid’s perspective,” she says. “You give a plastic card to a cashier, and you get a bunch of stuff. It almost seems like you get something for nothing, so paying with cash is important.”

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